Regulators:
The State Council has established a financial stability and development commission, according to Xinhua. Speaking at the National Financial Work Conference on July 15, Chinese president Xi Jinping said the new commission will strengthen the PBoC’s role in managing financial systemic risk. Xi also said that China will continue to promote RMB internationalisation and financial innovation in Belt and Road project.
Tao Wang, economist at UBS, said the establishment of the commission will grant the central bank more regulatory power and greater involvement in policymaking.
“We… expect the PBoC to take a more prominent role in helping supervise systematically important financial institutions,” wrote Wang in a July 17 note. “The new commission may be involved in or consulted with in monetary policy decisions as the latter would have implications for financial stability.”
Economy:
China recorded 6.9% year-on-year GDP growth in the second quarter of 2017, the same as in the first quarter. But Julian Evans-Pritchard, China economist at Capital Economics, said the growth momentum is unlikely to last in the second half.
“The recent crackdown on financial risks has driven a slowdown in credit growth, which will weigh on the economy during the second half of this year,” wrote Evans-Pritchard in a July 17 note. “What’s more, the National Financial Work Conference that concluded over the weekend has signalled that further regulatory tightening remains on the horizon.”
Bonds:
Spain’s Instituto de Credito is planning to issue the country’s first Panda bond, according to a July 14 media report quoted by the official Belt and Road initiative website. The state-owned bank said the planned issuance will help diversify its financing channels and provide easier financing access for Spanish enterprises in China, according to the report.
Bank of China (BOC)’s Credits Investment and Financing Environment Difference (CIFED) Index fell by 34.8 points in April, ending a streak of gains in the past four months, the bank said in a July 11 report. BOC attributed the convergence in yields between onshore and offshore renminbi-denominated bonds to a looser regulatory environment in the onshore market and improvement in CNH liquidity in the offshore market.
The CIFED measures the difference in financing cost between onshore and offshore renminbi bonds.
RMBi:
The RMB International Index created by Renmin University’s International Monetary Institute (IMI) fell by 29.8% in the fourth quarter of 2016 to 2.26 points, Xinhua reported on July 15.
However, the IMI’s deputy director, Xiang Songzu, insisted that the setback is only temporary, and that China has changed the model of RMB internationalisation.
"The retreat will not change the long-term upward trend,” said Xiang at a press conference on July 15. “The financial markets, which have opened wider to the rest of the world, have become the core driving force of the yuan's global journey.”
Belt and Road:
Local governments must seek to innovate in Belt and Road projects, He Lifeng, chairman of the National Development and Reform Commission (NDRC), told attendees at a conference on Belt and Road held on July 13. This was especially the case when investing or looking for financing for Belt and Road projects abroad. He also stressed the importance of risk prevention and management in coordinating for Belt and Road projects.
The first project financed by loans arranged for the China-Pakistan Economic Corridor, which forms part of Belt and Road, has been put into operation, according to Industrial and Commercial Bank of China (ICBC) on July 11. The Sachal wind farm in Pakistan was funded by a $100m loan by ICBC.
FX:
The PBoC’s renminbi fix against the dollar was set at 6.7774 this morning, 28bp stronger from Friday. In the spot market, the CNY was trading around 6.7660 at 10.13am, with the CNH at 6.7639, up 0.14% and 0.03% from their previous close, respectively, according to Bloomberg data.
The dollar index was trading at 95.193 at 10.41am, up 0.04% from the previous close, according to Bloomberg. The Thomson Reuters CNY reference index closed at 93.85 on Sunday, down 0.45% from its previous close.
The trade-weighted index by CFETS closed at 93.34 on July 14, down 0.19% from the previous week, with the BIS basket and special drawing rights basket at 94.27 and 94.40, down 0.19% and up 0.3%, respectively.
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